The government wants to use this programme to reduce household poverty levels. But Katine residents doubt this will happen because the Savings and Credit Cooperative Organisations (SACCOs) that are meant to influence development in the community are failing to take off.

The ministry of microfinance is channelling money to the community through SACCOs in the hope that people will take out loans to help improve their living conditions.

Through regional support centres, the government lends SACCOs money at an interest rate of 9% per annum. The community then borrows money from its local SACCO for agricultural activities or business at interest rates of 9% and 13% respectively.

The existence of functioning cooperative societies can leave a positive mark on the economic and social structure of a country since cooperatives develop on the basis of local initiative and local economic strength; decentralised cooperative systems can operate in close proximity to markets and target groups.

The UN is a fan of these microcredit programmes, saying they have successfully contributed to lifting people out of poverty in many countries around the world.

In his speech launching the Year of Microcredit in 2004, the former UN secretary general Kofi Annan emphasised that sustained access to microcredit had contributed to poverty reduction by generating income and employment, enabling children to attend school and families to receive medical care. It also offered individuals the opportunity to make more informed decisions.

Annan said income was crucial if basic needs were to be met in a sustainable manner. Yet income is only generated by individuals who have the chance to take part in economic activities. And it is possible to save only if there is an adequate level of income. He argued that access to financial services and markets was therefore "an essential prerequisite for self-sustained poverty reduction. Poor people have a considerable productive potential which can be mobilised by means of self-help approaches".

The effectiveness of microcredits depends on whether they are managed professionally by local institutions. Microfinance institutions generate savings capital, mobilise local resources and in doing so promote development processes. The fact that they provide access to financial services to individuals who would otherwise be excluded is their strength.

In Uganda, the success of the SACCO programme has been mixed. While the scheme appears to have been successful in western and central Uganda, it has faired less well in the east and north. And the programme has been tainted by corruption, with people's savings being embezzled with impunity.

Each sub-county is expected to have at least one SACCO that would be supported by government through the Uganda Cooperatives Savings and Credit Cooperative Union (UCSUC), the body mandated to oversee the success of the programme.

There is a SACCO in Katine, with a membership of 336, but any benefit of the programme, introduced two years ago, has yet to be fully realised in the sub-county.

It has been claimed that sub-county officials have failed to mobilise residents to benefit from the programme.

The chairman of Katine's SACCO, Sam Emolu, says: "We have a membership fee of Shs 2m, but without savings or anyone coming to borrow, our money is just redundant in the bank."

Savings books from a VSLA. Photograph: Dan Chung

Emolu argues that the savings scheme would have been the best option for the poor to recover from poverty, but that the timing and approach used when it was introduced has affected its success.

"While the government's intention was to benefit all people, some politicians used it [SACCO programme] as a political tool to win support for their political parties. NRM members went round telling people that the scheme was meant for only NRM members," he says. As result opposition members boycotted the scheme.

There was also an expectation among residents that the government was going to hand out free money, and when they realised that was not the case, they pulled out.

The VSLAs are more affordable and residents have more control over their contributions. While SACCOs charge a registration fee of Shs 2,000 ($0.90) and Shs 5,000 for membership, VSLAs charge Shs 200 as a "disaster fee" (the money goes into a fund that can be accessed for emergencies) and Shs 500 for shares. A resident can buy as many shares as they want. Interest rates are high, at 10%.

Cornelius Onaba, the chairman of Emorikikons VSLA, in Olochoi village in Katine parish, says SACCOs are not suitable for the poor.

He says SACCOs exclude of the very needy who cannot afford to pay the fees. He said his VSLA group of 30 members has so far collected Shs 1.2m and all members are responsible for the security of their money.

"The keys to our safe [where money is kept] are with three people, while the box itself is with another person - so by the time you think of stealing, you really need to convince many people. Even then, we do not encourage money to be redundant. We try as much as possible to see that members borrow money and use it for development," he said.

Whether SACCOs or VSLAs, cooperatives can be well-equipped to benefit local communities, combining local activities with regional and national networking. But they must adapt their structures and operations to meet local needs so they contribute not just to strengthening their members, but the local economic structure in which they are operating.

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